According to the Promotion Optimization Institute's 2019 State of the Industry Report, CPG companies spend between 11% and 27+% of revenues on trade promotions. With such a large investment, there is a lot to gain, but also a lot to lose.
That's why trade promotion optimization (TPO) is so critical to success. It's one thing to simply run a promotion from start to finish and then move on, but entirely another to take the time to learn from each promotion and gather insights into how to improve your trade promotion strategy going forward.
In this post, we will discuss what trade promotion optimization is, some misconceptions in the industry regarding how to approach it, and how you should work it into whatever trade promotion strategy you already have in place.
What is Trade Promotion Optimization?
TPO is a data-driven process by which brands can minimize spend while increasing ROI on their trade promotions. With 55% of trade spending failing to raise consumer awareness of brands in any meaningful way, TPO is vital to better allocation of trade spend. By focusing on the goals of a promotion, any obstacles or constraints that affect the ability to reach those goals, and data-backed insights to predict the potential outcome of a promotion, brands can create a cycle of continuous improvement when it comes to their trade promotion strategy. The longer a brand has a TPO strategy in place, the better their insights will become, which will help them set more accurate goals and better predict what stands in the way of reaching them.
Trade Promotion Optimization and Trade Promotion Management
Now that we understand the value of TPO, let's talk about another important aspect of a trade promotion strategy: Trade Promotion Management (TPM). The main difference between TPM and TPO is while trade promotion management deals more directly with the logistical and tactical aspects of trade promotions, trade promotion optimization focuses on "what-if" scenarios and utilizes data from past promotions to better plan for future ones.
Traditionally, TPO and TPM have existed separately from each other. Many companies were under the impression that TPO could only occur after a solid TPM strategy was in place. However, this notion actually held them back from achieving peak promotion performance. The truth is you can and should integrate TPO with your TPM strategy early on, working towards a holistic approach to trade promotions that is seamless in both planning and execution.
So what would this holistic approach look like? Brands can start optimizing for the future of their trade promotion strategy before they even have a promotion planned by thinking about things like:
- How they will measure the success of individual promotions
- What data they already have that is relevant, as well as what new types of data they need to collect to get the most out of a promotion
- How they will analyze the success of their promotion strategy over time
- How to streamline the planning process of trade promotions
- How to base scheduling of promotions off of outside factors that may affect the promotions' success
- How to conduct post-promotional analysis that feeds into a cycle of continuous improvement
Integration is the key to optimization when it comes to trade promotions. With so much at stake, brands shouldn't wait to invest in TPO and work it into their TPM. No matter what stage you are at with your trade promotion strategy, it is never to early to focus on optimization.
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